What is HAFA?
The Home Affordable Foreclosure Alternatives (HAFA) Program is a government-sponsored initiative announced in November 2009 overseen by the US Treasury Department and administered by Fannie Mae (Fannie) assisting all Home Affordable Modification Program (HAMP) eligible homeowners in avoiding foreclosure, specifically through short sales (SS) or deeds-in-lieu (DIL) of foreclosure. As of April 5th, 2010, with some banks participating sooner than the April 5th commencement date, HAFA directs lenders to assist eligible homeowners in quickly and effectively implementing short sales or deeds-in-lieu by providing financial incentives to both lenders and homeowners that proceed with foreclosure alternatives through the program’s guidelines. HAFA in its current state is only applicable to conventional-type, non-Governmental Serviced Enterprises (non-GSE) mortgages and therefore does not apply to loans owned or guaranteed by Fannie or Freddie Mac (Freddie). Fannie and Freddie may have plans to release their own versions of HAFA later this year.The HAFA program simplifies and streamlines the use of short sale and DIL options by incorporating the following unique features:
- Utilizes borrower financial and hardship information collected in conjunction with HAMP, eliminating the need for additional eligibility analysis.
- Allows the borrower to receive pre-approved short sale terms prior to the property listing
- Requires that borrowers be fully released from future liability for the debt
- Provides financial incentives to borrowers, servicers, and investors. Borrowers can receive up to $3,000 relocation assistance assuming a complete he or she meets all of HAFA guidelines and provides all documents required to process short sale or Deed-in-Lieu of foreclosure.
- Complements HAMP by providing viable alternatives for borrowers who are HAMP eligible
Timing & Eligibility
–Servicers must consider a HAMP-eligible borrower for HAFA in accordance with their policies within 30 calendar days of the date the borrower:
- Does not qualify for a HAMP Trial Period Plan.
- Does not successfully complete a HAMP Trial Period Plan.
- Is delinquent on a HAMP modification by missing at least two consecutive payments, or
- Requests a short sale or DIL.
When does HAFA expire?
HAFA is set to expire December 31, 2010. Like other government initiatives, if the program is successful, it may be extended.
In order to qualify for HAFA, the property is the borrower’s principal residence, except that the property can be vacant up to 90 days prior to the date of the Short Sale Agreement (SSA). If the borrower provides documentation that the borrower was required to relocate at least 100 miles from the property to accept new employment or was transferred by the current employer and there is no evidence indicating that the borrower has purchased a one- to four-unit property 90 days prior to the date of the SSA, Alternative Request for Short Sale Approval or or DIL Agreement may be granted by bank.
This has been inaccurately described as “Cash for Keys.” If a homeowner completes a short sale or deed-in-lieu of foreclosure within the guidelines of HAFA, only then do they qualify for up to $3,000 in assistance to help them with relocation expenses. Only one payment per household is given, i.e., even if there are multiple family members short selling their joint residence, they must share the $3,000 between them.
What are the tax considerations of a HAFA short sale or deed-in-lieu?
The difference between the remaining amount of principal owed and the amount that the servicer receives from the sale must be reported to the Internal Revenue Service (IRS) on Form 1099C, as debt forgiveness. In some cases, debt forgiveness could be taxed as income. The $3,000 Borrower Relocation Assistance may also be reported as income. A short sale may have income tax consequences and/or may have a derogatory impact on the borrower’s credit score. Homeowners should contact the IRS or their tax preparer to determine if they may have any tax liability.
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